(MoneyWatch) Retirement is the most important thing Americans will ever save for -- more important than summer vacation or home ownership or even their kids' education.
People are surprised to hear it, but you must make your own retirement a priority above paying for your kids' education. Here's the reason: While there are a multitude of scholarships and loans available for college students, there are no scholarships for retirement. Your children will have their whole careers ahead of them to pay off loans, whereas you may putting yourself at financial risk -- and ultimately, your kids' -- if you delay saving for your own retirement.
I like to describe it like being on an airplane when the flight attendant explains how to use the air mask, and that you need to secure your air mask before you attend to a small child. First, get on track for retirement -- then you can think about funding little Johnny's college plan.
But what about debt? Is it better to save for retirement or pay off debt?
This is a tricky question because it depends on the amount and nature of the debt. The ideal is to pay down debt in a steady, systematic way and save as much as you -- and your family -- can live with.
If your debt is accruing high interest fees, by all means, pay it off as soon as possible. It comes down to simple math -- If you're paying 11 percent interest on $10,000 of credit card debt and have $10,000 in the bank earning 1 percent interest, you're losing 10 percent a year.
But what about retirement accounts with tax advantages? Say your employer matches your 401(k) contributions 50 cents for every dollar, up to 6 percent of your pay; that's a guaranteed 50 percent return. In this case, investing to get your employer's full match should be your top priority. Taking advantage of tax-advantaged savings like this will allow more room in your budget to chip away at those debts later.
And once you make a contribution to your 401(k), forget about it. That's not your money. It's money for your future self. Except for rare instances in which penalties are waived, you'll often owe income taxes and a 10 percent penalty on any money you withdraw early if you're under 59 1/2.
Despite the penalties, people are breaking the retirement piggy bank at an alarming rate. According to recent research from Hello Wallet, a financial advisory firm, a large and growing number of employees -- one in four 401(k) participants -- are accessing funds from retirement accounts for financial emergencies and other purposes.
For this reason, I advise people to first have a "rainy day" fund before socking every extra penny into retirement. Budget accordingly so you can commit to a "hands-off" policy with your 401(k) plan. And never borrow against your retirement to fund educational expenses.